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BitPay settles with OFAC for apparent violations

OFAC has announced that BitPay, Inc., a private company based in Atlanta, Georgia, that offers a payment processing solution for merchants to accept digital currency as payment for goods and services, has agreed to remit $507,375 to settle its potential civil liability for 2,102 apparent violations of multiple sanctions programs that occurred between June 2013 and September 2018. BitPay allowed persons who appear to have been located in the Crimea region of Ukraine, Cuba, North Korea, Iran, Sudan, and Syria to transact with merchants in the United States and elsewhere using digital currency on BitPay’s platform even though BitPay had location information, including IP addresses and other location data, about those persons prior to effecting the transactions. BitPay received digital currency payments on behalf of its merchant customers from those merchants’ buyers who were located in sanctioned jurisdictions, converted the digital currency to fiat currency, and then relayed that currency to its merchants.

OFAC's enforcement action is a reminder that companies involved in providing digital currency services—like all financial service providers—should understand the sanctions risks associated with providing digital currency services and should take steps necessary to mitigate those risks. Companies that facilitate or engage in online commerce or process transactions using digital currency are responsible for ensuring that they do not engage in unauthorized transactions prohibited by OFAC sanctions, such as dealings with blocked persons or property, or engaging in prohibited trade or investment-related transactions.


OCC, CFPB and NCUA publish supervisory guidance rule

The OCC, CFPB, and NCUA have published their previously announced final rules on the Role of Supervisory Guidance at 86 FR 9253, 86 FR 9261, and 86 FR 7949, respectively. The OCC and CFPB rules will be effective March 15, 2021. The NCUA rule becomes effective March 5, 2021.


FDIC names Chief Innovation Officer

The FDIC reported Tuesday it had named Sultan Meghji as the agency’s first Chief Innovation Officer, charged with leading the FDIC’s efforts to promote the adoption of innovative technologies across the financial services sector.

FDIC Chairman Jelena McWilliams said, "As a recognized expert in financial technology, Sultan brings years of technical knowledge and an entrepreneurial spirit to our FDiTech team. Under his leadership, I am confident we will find innovative ways to utilize technology to modernize our bank supervision, enable community banks to adopt technological solutions, and bring more underserved people into the financial fabric of our nation.”


FedNow Service payment flow video

Federal Reserve Financial Services has created a new 3½ minute video to illustrate the FedNow℠ payment flow. It follows a payment over the FedNow Service from start to finish and shows what financial institutions need to know about their role in the process.

Payments processed over the FedNow Service will settle between financial institutions in real time and end users will have access to money sent to them within seconds. Financial institutions that participate in the FedNow Service can meet the evolving needs of their customers and keep pace with the competition. Other benefits include:

  • Attracting and retaining customers
  • Growing revenue (e.g., transaction fees, fees for new service or product offerings)
  • Lowering costs through increased efficiency (e.g., automation and operations)
  • Reducing interbank settlement risk

Federal Reserve Financial Services has said it will start rolling out its FedNow service beginning in 2023.


Financial Sector Innovation Policy Roundtable

The Treasury Department reports it hosted its inaugural U.S. Financial Sector Innovation Policy Roundtable on February 9 and 10. The Roundtable brought together policymakers and regulators with experts from the private sector to exchange views for collaborating on policy issues and innovative technologies that support global financial integrity, while fostering economic recovery, competitiveness, and financial inclusion.

At the event, participants focused on how innovations like interoperable, privacy-preserving digital identity solutions, and more effective anti-money laundering and anti-fraud mechanisms can provide value to financial services companies and their customers by eliminating redundancies, reducing costs, combating illicit use, and promoting financial inclusion in an increasingly digital world.

Participants also addressed policy and regulatory approaches to promote responsible innovation in the financial sector, as well as the role of international organizations and cooperative events, such as Innovation Hubs and Tech Sprints, to support financial products and services for consumers (FinTech), regulatory compliance solutions for financial institutions (RegTech), and new tools for financial sector supervision and examination (SupTech). In addition, participants discussed how governments across the world can work domestically and cooperate internationally to develop and implement new financial and regulatory tools in the era of digital finance, and drive adoption of trustworthy and cutting-edge digital identity solutions to combat money laundering and the financing of terrorism and other crimes.


OCC to hold virtual innovation office hours

The OCC has announced that it will hold virtual Innovation Office Hours March 17–18 to promote responsible innovation in the federal banking system. Office hours are one-on-one meetings with representatives from the OCC Office of Innovation to discuss financial technology (fintech), new products or services, partnering with a bank or fintech company, or other matters related to responsible innovation in financial services.

Each meeting will last no longer than one hour. Interested parties should request a virtual office hours session by February 22 and are asked to provide information on the topic(s) they are interested in discussing with the Office of Innovation. Specific meeting times and arrangements will be determined after the OCC receives and accepts the request.


SEC charges individuals with digital asset fraud

The Securities and Exchange Commission has charged three individuals with defrauding hundreds of retail investors out of more than $11 million through two fraudulent and unregistered digital asset securities offerings. According to the SEC's complaint, filed in U.S. District Court for the Eastern District of New York, from approximately December 2017 through May 2018, Kristijan Krstic, founder of Start Options and Bitcoiin2Gen, and John DeMarr, the primary U.S.-based promoter for these companies, fraudulently induced investors to buy digital asset securities.

The SEC alleges that Krstic and DeMarr touted Start Options' purported digital asset mining and trading platform. According to the complaint, they falsely claimed Start Options was "the largest Bitcoin exchange in euro volume and liquidity" and "consistently rated the best and most secure Bitcoin exchange by independent news media." The SEC also alleges that, starting in January 2018, Krstic and DeMarr promoted Bitcoiin2Gen's unregistered initial coin offering (ICO) of digital asset securities known as B2G tokens. According to the complaint, another individual, Robin Enos, working with DeMarr, drafted fraudulent promotional materials that Enos knew would be disseminated to the investing public. These materials allegedly contained numerous false statements, including that the B2G tokens would be deliverable on the Ethereum blockchain, that the invested funds would be used to develop a coin that was "mineable," and that the tokens would be tradeable on a proprietary digital asset trading platform at the platform's “launch” in early April 2018. In reality, the complaint alleges, these claims about the B2G tokens were false, Bitcoiin2Gen was a sham, and Krstic and DeMarr allegedly misappropriated millions of dollars of investor funds for their own personal benefit.


Zoom settles with FTC

The Federal Trade Commission announced yesterday it has finalized a settlement with Zoom Video Communications, Inc., over allegations Zoom misled consumers about the level of security it provided for its Zoom meetings and compromised the security of some Mac users. The final order requires Zoom to implement a comprehensive security program, review any software updates for security flaws prior to release and ensure the updates will not hamper third-party security features. The company must also obtain biennial assessments of its security program by an independent third party, which the FTC has authority to approve, and notify the Commission if it experiences a data breach.


Fed Services sending attestation materials to FedLine users

Federal Reserve Bank Services has notified FedLine Solutions client organizations that the Federal Reserve Banks are distributing attestation materials to them via emails from "Assurance Program" and from the sending domain

In response to the evolving security threat landscape, the Federal Reserve Banks are implementing a Security and Resiliency Assurance Program. As part of this new program, institutions that use the FedLine Solutions must conduct an assessment of their compliance with the Federal Reserve Banks’ FedLine security requirements and submit an attestation that they have completed the assessment. These steps will help reduce the risk of systemic breakdown and fraudulent payments being sent through the payments system. The attestation program must be completed by the end of calendar year 2021, and annually thereafter.


SAR exemption proposals published

The OCC's, NCUA's, and FDIC's December 2020 proposals to permit, with FinCEN agreement, certain exceptions to SAR filing requirements, have been published in this morning's Federal Register, with a comment period ending on February 22, 2021. The Federal Reserve Board has published a similar proposal, with the same comment period.


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